The Energy Crisis Due to the Military Conflict Between the US and Iran Has Significantly Benefited the Russian Budget by Increasing Oil and Gas Revenues. Therefore, a Quick Peace and Unblocking of Hormuz Is Not the Best Option for Russia. Likewise, a Scenario Where War Erupts with Renewed Force Also Does Not Favor Russia. Which Conclusion of the Middle Eastern Crisis is Most Beneficial for Russia?
At the end of 2025 and early 2026, the Russian budget faced a decline in oil prices. In January and February, the price of Urals was $41 and $45 per barrel, which is significantly lower than the budgeted price of $59 per barrel. This was a catastrophic start to the year and created serious risks for increasing the budget deficit in 2026.
However, thanks to the Middle Eastern conflict, the situation became much easier. By March, the tax price of Urals rose to $77 from $45 in February, and in April it reached $95. In May, it may rise even higher. As a result, oil and gas revenues increased by almost 240 billion rubles in April compared to March.
Nevertheless, the Ministry of Finance should not relax just yet, as US sanctions may recur this year. Furthermore, compared to last year, oil and gas revenues are lower. Russia needs oil prices at $95 not just in April but throughout the year. This heavily depends on the resolution of the Middle Eastern conflict. The US and Iran are making attempts to negotiate.
What peaceful settlement scenario is most advantageous for Russia in terms of oil prices and budget revenues?
Four possible outcomes of the conflict can be identified: a rapid peace agreement and the opening of the Strait of Hormuz; protracted negotiations; escalation of military conflict with renewed destruction of infrastructure; and a prolonged crisis with plummeting consumption.
The first scenario involves a quick interim agreement between the US and Iran, a ceasefire, and gradual opening of the Strait of Hormuz by May-June. This could be a temporary agreement rather than a comprehensive peace settlement. On these expectations, Brent has already fallen below $100 per barrel, and if a real agreement is reached, it could drop to $80-90, says Vladimir Chernov, an analyst at Freedom Finance Global.
However, he does not expect the Russian Urals brand to drop to $41 per barrel as it did at the beginning of the year, because even after the strait is opened, physical deliveries will take weeks or months to recover.
"If transit through the Strait of Hormuz is restored by summer 2026, this may lead to a gradual decrease in oil prices to around $70 per barrel. But lower prices will only be seen next year when the consequences of the conflict are fully mitigated, including the restart of oil production in idled wells," believes Sergey Tereshkin, General Director of Open Oil Market.
The second scenario involves protracted negotiations and a partial opening of the strait: formally, the movement of vessels will begin to recover, but insurance, inspections, military risks, and queues will persist.
"In the case of prolonged negotiations, oil may remain in the range of $95–115 per barrel of Brent. For Russia, this is the most comfortable option in terms of revenue, as Urals prices could stay significantly above the budgeted $59 per barrel," says Chernov.
The third scenario entails a new military escalation, strikes on infrastructure, a breakdown of negotiations, and the continuation of the effective blockade of Hormuz. In this case, oil prices could quickly rise above $110–120 per barrel, gas in Europe and Asia will remain expensive, and the market for oil products will become even scarcer, states Chernov.
The problem here is that the third scenario risks devolving into the fourth—an extended conflict where energy resources become so expensive that a global economic downturn begins, leading to a sharp decline in prices.
"Escalation of the military conflict and destruction of additional energy facilities in the Middle Eastern countries is fraught with prices climbing to exorbitant levels—with both oil and gas. If the price becomes extremely high, it will lead to a reduction in overall consumption globally, and recovering the market will then be very difficult and lengthy. This is also unfavorable for us, as our export markets would decrease," explains Igor Yushkov, an expert from the National Energy Security Fund (NESF) and the Financial University under the Government of the Russian Federation.
Maintaining current prices at $100-110 per barrel (high but not extreme prices) is the best scenario, whereby there is no decrease in demand in our export markets, he adds. "The longer the Strait of Hormuz remains closed, the better for Russia; the more we can earn. Maintaining the status quo is beneficial for us," he states.
Another risk arises from the UAE's announcement of its exit from OPEC. If they can ramp up production before the Strait is opened, oil prices may go down, and the question of how low they will drop remains open, ponders Yushkov. If other member countries follow the UAE's lead and also wish to exit the OPEC+ deal, it could further impact prices negatively. "For now, everyone is silent because there's no point in exiting the deal—the export of oil is still limited, but with the opening of Hormuz, their position may change. Unlike Middle Eastern countries, Russia cannot quickly increase production, meaning we would just have lower prices under current production volumes," muses Yushkov.
The gas and related goods market is in a better position in this regard, as compared to oil, there are no reserves for gas. "When the Strait of Hormuz was closed, oil producers continued to pump large quantities and stored oil. This was not the case with gas; Qatar was forced to halt production due to strikes on infrastructure. Therefore, a certain scarcity in gas and related goods (methane, helium) may persist, and prices will remain high," Yushkov explains.
In terms of oil, a restraining factor on price reductions will be the drawn-down strategic reserves that will need to be replenished, says the expert. "But if OPEC+ collapses and everyone starts producing at maximum capacity, even that factor will not be able to keep prices from dropping significantly over some period, potentially a few months, until the market rebalances through cutbacks in production by some players," reflects Igor Yushkov.
However, even in the best-case scenario (the second), maintaining high but not excessively high oil prices will not make filling the budget an easy task. According to Chernov, in the first four months of the year, oil and gas revenues were around 2.3 trillion rubles against an annual plan of about 8.92 trillion rubles. This means that about 6.6 trillion rubles need to be raised in the remaining months of the year, or about 828 billion rubles per month. In April, revenue was higher—855.6 billion rubles.
"If prices remain high and monthly revenues are around 0.9–1 trillion rubles, the annual plan for oil and gas can not only be met but exceeded by around 0.3–1.4 trillion rubles. If oil prices drop quickly and monthly revenues return to somewhere between 700–750 billion rubles, the plan will again come under pressure," assessed Vladimir Chernov.
"High oil prices are very helpful, but the budget issue is not resolved. In the first quarter, the federal budget deficit already amounted to 4.576 trillion rubles or 1.9% of GDP. This is above the annual plan.
The scenario of Urals returning to $41 this year now seems unlikely. However, it cannot be stated that such a level will definitely not occur, as the oil market is currently too volatile," the expert adds.
According to his expectations, if Urals remains above $70–75 per barrel, the budget will proceed through the year considerably more smoothly, and if the average price is closer to $85–95, oil and gas revenues will significantly mitigate the risk of a severe budget deficit. However, this will not fully resolve the deficit issue due to increased military spending, a strong ruble, and damping payments to oil producers, concludes the expert.
Source: Vedomosti
